Development of Models to Facilitate the Provision of Free Basic Water in Rural Areas
Report No 1379/1/05
March 2005
Executive Summary
The Free Basic Water Policy was officially implemented in July 2001. The policy was rolled out in most urban areas on or near this date. However, in rural areas it was much more difficult, and there are many areas that have not yet seen the implementation of Free Basic Water (FBW). This is due to varying financial, technical, political and logistical problems at the local and district municipality level.

This research investigates the current situation in rural municipalities, looking specifically at FBW policy, institutional arrangements, operation and maintenance costs, cost per capita and affordability in relation to the Equitable Share allocations. Five case study areas were chosen: the uThukela Water Partnership (KwaZulu Natal); the Alfred Nzo District Municipality (Eastern Cape); the Ngqushwa Local Municipality (Eastern Cape); the Vulindlela Water Scheme (KwaZulu Natal) and the Nlhungwane Community Scheme (Kwa Zulu Natal).

From this research it is clear that Water Service Authorities (WSA) are at varying levels of implementation, with few having a fully operational policy that is reaching the rural areas. Some communities have not been informed about FBW and are still paying for all their water.

The institutional arrangements for FBW implementation are unique to each WSA, but a common factor in efficient, cost effective provision was noted to be the contracting of an organisation with the expertise and capacity to successfully manage water provision within a budget. An example of such an arrangement is found in the organogram below:
Institutional arrangement for water provision
Figure 1: Cost effective institutional arrangement for water provision

For each case study area the operation and maintenance costs were determined (as far as possible), and from this, the cost per capita per month for water provision. One recurring cause for concern was the lack of asset replacement costs in WSA budgeting. This will cause a major problem in the future when infrastructure needs to be replaced. It was noted where a WSA had not developed a FBW policy an ad hoc, unreliable operations and maintenance system tended to be in place, with higher costs than encountered where a reliable, comprehensive service was provided. This highlights the need for WSAs to prioritise FBW, regardless of their budget restraints, as FBW-by-default could result in greater expenditure than if the time, resources and budget are allocated for the development of a sound FBW policy and implementation strategy.

There was a large range in costs per capita, with a trend that showed the influence of economies of scale. This is illustrated in the graph below (Figure 2) that shows the benefits of a water service provider covering a large population.

Correlation between cost per capita and population served

Figure 2: Correlation between cost per capita and population served

The median of these per capita costs was used as a recommended cost per capita to which WSAs could align their budgets. This cost has proven to be attainable by service providers in different environmental, financial, social and political environments encountered in this research. This recommended cost per capita per month is as follows:

R3.51 (operations and support) + R2.33 (asset replacement)
= R5.84 Total cost /capita/month    (in 2004/2005 value)

For poor rural areas the affordability of FBW is primarily determined by the Equitable Share (ES) allocations.  These allocations, when compared with the median cost calculated above, show that the ES allocations are insufficient to cover the operation and maintenance costs in all but one of these rural areas. Table 1 shows the portion of the ES that is allocated by National Treasury for the supply of water and divides this grant money (at R5,84 per capita per month) by the population served by the water service provider. The last two columns show the percentage of the population that the grant can cover, and the percentage cover that is currently required at reported indigence levels and service levels. This shows that even if it is taken into account that, for example, only 80% of the population should qualify for FBW, and that only 55% of the population currently have access to potable water, the ES is insufficient to supply for this portion of the population.

Table 1: Affordability of FBW
  ES allocated for water WSA Popln
(Census 2001)
Recommended Cost/cap/mnth % cover possible at recommended cost/c/m % cover needed at present levels of service provision and indigency
uTWP R40,986,809 1 581 480 R5.84 37% 43%
Alfred Nzo DM R35,699,689 550 389 R5.84 93% 57%
Ngqushwa R2,984,680 84 229 R5.84 51% 60%
Vulindlela (uMsunduzi) R13,673,977 553 223 R5.84 36% 48%

However, the situation at Alfred Nzo DM is encouraging, and should be a motivating factor to other WSAs to implement FBW formally within their entire jurisdiction. The reasons for the high ES grant to the Alfred Nzo District Municipality are most likely: accurate indigence statistics and a high level of FBW implementation. The Free Basic Services Grant is determined by the number of people actually being provided with the services. Therefore, as the other WSAs increase their levels of provision, the grant allocation will increase. However, the problem of differing indigence statistics is more difficult to rectify. National Treasury only supplies grant finances for the indigent households as determined by the latest Census statistics. These statistics differ significantly from the indigence statistics used by the municipalities in this research. An example of this problem is demonstrated in uMzinyathi DM, one of the DMs in the uThukela Water Partnership: Census 2001 gives and indigency level of 72%, while the Water Services Development Plan for the DM gives an indigency level of 93%. This discrepancy translates into approximately 100 000 people that are not provided for by the ES.

These problems with affordability highlight the need for WSAs to have effective and efficient cost recovery systems that ensure payment for water by those that are not poor, and by all users who consume more than the free basic allowance. Cost recovery was a noted problem in each of the case study areas and needs practical and politically acceptable solutions if FBW is to be sustainable.

Free Basic Water in the rural areas of South Africa is difficult, but possible. With good management FBW could be sustainable in the long term as long as national government provides sufficient levels of Equitable Share revenue to municipalities. From the lessons learned in this research, the key factors in successful implementation are: good planning; the honest assessment of the WSA capacity and the consequential contracting of experts to fulfil the roles and responsibilities they cannot; political support for FBW policy; and accountability.